American Private Equity Firm Invests $60 Million in Verafin

Verafin, the St. John’s company that develops software for battling money laundering and fraud, has attracted a $60 million buy-in from American private equity firm Spectrum Equity, which will finance the company’s next phase of growth.

Spectrum is buying a stake of just under 50 percent of the company. It may be the largest institutional investment ever in an Atlantic Canadian startup, exceeding Northwater Capital’s $30 million funding of Unique Solutions in the summer of 2011.

Based in Boston and Silicon Valley, Spectrum has raised $4.7 billion for investment in IT and media companies, and now has more than 50 portfolio companies including AMC Entertainment, SurveyMonkey and Ancestry.com.

"We have long been impressed by Verafin's commitment to developing innovative risk analytics and to harnessing these efforts in a solution that is both state of the art and easy to deploy," Chris Mitchell, Managing Director at Spectrum Equity, said in a statement.

People familiar with the deal said about $10 million of the payment will be used as growth capital for the company, and the remainder with buy out early investors, including St. John’s-based Killick Capital. Headed by Mark Dobbin, Killick is one of the region’s leading private investment funds and first invested in the company in Verafin in 2007.

Verafin was incubated at the Genesis Centre at Memorial University of Newfoundland and developed world-class software for detecting and preventing money laundering and fraud. Its client-base is concentrated in mid-sized financial institutions – a massive market given that there are now almost 7,000 commercial banks in the U.S. alone.

The company has been growing strongly for several years. Its citation in the Deloitte Technology Fast 50 (the 50 fastest-growing tech companies in Canada) in 2012 revealed its revenues had grown 358% in the five years to 2011. In March 2013, the company added the 1,000th financial institution to its list of clients.

It now has 200 employees, and it expects its revenues this year will increase 50 percent to $30 million, CEO Jamie King said in a speech at Memorial last week. And it definitely solves huge pain as debit fraud losses could reach $20 billion by 2015 and organized crime is estimated to launder $1.6 trillion annually.

The company frequently learns of its software being used to catch people engaging not only in white collar crime but also drug trafficking, elder abuse and human trafficking – news that King says invigorates his entire staff.

"Financial institutions are facing ever increasing fraud threats and compliance mandates from regulators, and Verafin is committed to providing our customers with the best software solutions to allow them to effectively fight financial crime," said King in the statement.

In September 2009, RBC Venture Partners, the VC arm of Royal Bank of Canada, led a $5.5 million investment round in Verafin. The other participants in that round were Killick and the founding investor in the company, Jamfin Inc. RBC Capital Markets acted as exclusive placement agent for the latest financing.

“Verafin has been a great company to be associated with, both in their product and their approach to management,” said Dobbin in a recent interview. “I’ve learned more from being on their board than from working with any other company I’ve been associated with.”

Dobbin’s other investments include Celtx, which makes software for the film industry, and MAX, a group of recreation and arts centres in Newfoundland. He said he will use the proceeds of the sale of his Verafin stake to Spectrum to “selectively and cautiously” seek new opportunity. The coming investments could include follow-on investments in companies now in his portfolio, and will likely include other Atlantic Canadian companies.

Peter Moreira

Peter Moreira spent more than 30 years in journalism in Asia, Europe and North America.
He worked with The Deal of New York, covering M&A, private equity and VC markets in the U.S. and Canada for six years and serving four years as London Bureau Chief. At Bloomberg, he covered European and U.K. banking and finance. He previously worked for the South China Morning Post in Hong Kong,...
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